MINERAL  ROYALTY  STREAM  FINANCING  
 
 
 
 
 
 
 
Aaron  Careaga  
Research  Analyst  
 
 
 
http://www.wealthmarkllc.com/research  
 
 
 
WEALTHMARK  LLC.    
1329  North  State  Street,  Suite  206  
Bellingham,  WA  98225  
September  2012  

 
 
 

Electronic copy available at: http://ssrn.com/abstract=2395057

 ABSTRACT  
 
Resource  streaming,  also  known  as  volumetric  production  payments  (VPP)  or  metal  purchase  
agreements,  provides  commodity  exploration  and  production  companies  the  necessary  financing  
to  bring  projects  into  production.  This  has  become  an  attractive  financing  option  due  to  the  fact  
that  VPP's  are  cheaper  than  equity  (no  shareholder  dilution)  and  safer  than  debt,  making  this  a  
"win-­‐win"  for  both  the  mine  operator  and  financing  company.  Streaming  agreements  allow  the  
mining  company  to  capitalize  on  proven  reserves  before  the  operation  becomes  productive.  
 
These  diverse  agreements  are  crafted  to  emphasize  each  party's  strengths  and  protect  against  the  
others  weaknesses.  The  underwriting  financier  enjoys  the  resource  upside  while  avoiding  the  
downside  risk  associated  from  operations.  Stream  financing  allows  the  mine  operator  to  leverage  
proven  reserves  to  fund  production  or  expansion,  while  avoiding  many  negative  side  effects  
associated  with  traditional  financing  methods.  
 
 
Aaron  Careaga  
WealthMark  LLC.    
1329  North  State  Street,  Suite  206  
Bellingham,  WA  98225  
aaron@wealthmarkllc.com  
 

      2  

Electronic copy available at: http://ssrn.com/abstract=2395057

  
1. Introduction  
 
The  principal  objective  of  a  mine  streaming  finance  firm  is  to  maximize  shareholder  value.  
This  is  done  by  selectively  investing  in  the  best  projects  that  will  provide  the  highest  
return,  both  in  the  short  and  long-­‐term.  The  financing  company  needs  the  mine  to  become  
productive  within  a  reasonable  amount  of  time  after  the  initial  investment,  otherwise  they  
could  over-­‐allocate  capital  into  projects  that  might  never  succeed.  Beyond  the  initial  cash  
outlay,  it  is  becoming  more  and  more  important  that  the  financing  company  actively  
manage  their  mineral  interests,  as  the  mining  environment  and  commodity  market  can  
greatly  fluctuate  over  a  short  period  of  time.  Active  portfolio  oversight  will  be  a  vital  
element  of  the  underwriting  company's  success.  
 
Opportunities  within  this  space  are  rapidly  expanding,  encouraging  more  traditional  
finance  firms  to  start  resource  streaming  departments,  or  spin  off  entire  units  that  offer  
services  targeted  at  mineral  streams.  The  evolution  of  this  specific  type  of  financing  in  the  
resource  industry  is  expected  to  grow  significantly  in  the  coming  years,  likely  outpacing  the  
commodity  demand  rate  of  growth.  
 
Investors  in  the  underwriting  financier  will  benefit  from  exploration  upside,  dividend  yield,  
and  the  ability  to  leverage  commodity  prices.  These  types  of  agreements  will  become  more  
important  to  commodity  investors  because,  as  the  market  becomes  more  efficient,  
investors  will  seek  higher  returns  on  less-­‐risky  assets.  Streaming  agreements  carry  the  
potential  to  significantly  lower  the  risk  found  in  commodity  producing  investments.  The  
inefficiencies  of  traditional  mine  financing  and  prevailing  disconnect  between  capital  
sources  and  operations  have  led  to  many  projects  being  abandoned.  This  places  both  
parties  in  an  advantageous  position,  as  the  auspicious  terms  in  mineral  resource  streaming  
agreements  far  outshine  traditional  financing  options.  
 
Existing  shareholders  and  new  investors  of  the  mining  operation  will  benefit  from  this  type  
of  financing  due  to  lower  exposure  to  capital,  operating,  and  environmental  costs.  Holding  
the  ability  to  finance  operations  on  a  project-­‐by-­‐project  basis  allows  the  firm  to  smooth  the  
waves  of  volatility  associated  with  this  type  of  operation  and  financing  agreement.  This  
puts  the  mining  company,  and  its  investors,  in  a  better  position  to  outride  industry  
downturns.  
 
As  the  economic  and  political  significance  of  commodities  continues  to  increase,  so  will  the  
need  of  these  producers  to  receive  the  financing  necessary  to  bring  products  to  market.  
Royalty  payment  streams  offer  an  innovative  and  relatively  lower  risk  vehicle  for  investors  
to  utilize  by  matching  the  capital  supply  with  industry  demand;  capturing  commodity  
spreads  and  market  fluctuations  without  the  risk  of  directly  operating  the  mine.  
 

      3  
 2. Overview  
 
The  concept  of  royalty  payments  on  non-­‐renewable  resources  has  been  a  common  
financing  tool  in  the  Oil  &  Gas  industry  for  many  years.  The  ability  to  monetize  reserves  
while  they  are  still  in  the  ground  has  proven  to  be  very  rewarding  to  both  sides  of  the  
transaction,  which  ultimately  inspired  the  application  of  royalty  payments  and  streaming  
to  the  mining  industry.  
 
HISTORY:  
 
Early  pioneers  to  apply  the  royalty  payment  methodology  in  the  mining  industry  are  
Seymour  Schulich  and  Pierre  Lassonde,  godfathers  in  the  resource  mining  space.  Schulich  
and  Lassonde  met  at  the  Vancouver  based  firm  Buetel,  Goodman,  and  Co.  and  joined  forces,  
later  starting  the  Franco-­‐Nevada  Mining  Corporation  in  1982.  The  firm  was  established  
with  the  intention  of  exploring  and  producing  gold  throughout  Nevada  but,  after  a  couple  
mediocre  attempts,  Schulich  and  Lassonde  transitioned  Franco-­‐Nevada  into  the  world's  
first  gold  royalty  company.  
 
Franco-­‐Nevada  applied  Schulich's  knowledge  of  the  royalty  space,  acquiring  their  first  
royalty  stream  in  1986  for  a  cost  of  $2  million  dollars,  giving  the  company  a  4%  annual,  and  
a  5%  net  profit  interest,  royalty  on  that  streams  production.    Lassonde  told  a  reporter  that,  
"To  our  surprise,  we  couldn't  identify  a  single  company  in  the  business  capitalizing  on  
hard-­‐rock  royalties.  That  was  our  cue.  That  was  the  real  start  of  Franco-­‐Nevada"  (Northern  
Miner).  As  of  2002,  this  stream  alone  was  generating  $30  million  annually.  Throughout  this  
same  period,  Franco-­‐Nevada  grew  from  an  initial  market  cap  of  $2.3  million  to  $3  billion,  
prior  to  merging.  
 
The  majority  of  resources  in  countries  across  the  globe  are  owned  and  controlled  by  the  
government,  limiting  the  opportunity  for  future  growth  in  both  the  mining  and  mineral  
resource  streaming  industry.  The  paradox  of  plenty,  also  known  as  the  oil  curse,  is  another  
factor  considered  to  be  a  burden  on  countries  with  poorly  managed  governments  who  
exploit  the  value  from  natural  resource  reserves  to  often  further  their  own  political  
interests  (Economist).  The  resulting  discriminatory  regimes  create  an  operating  
environment  that  is  not  cost-­‐effective  to  enter.  The  political  instability  and  corruption  that  
is  often  associated  with  such  countries  significantly  increases  the  overall  risk  and  costs  
related  to  mining.    
 
BENEFITS:  
 
Industry  participant,  the  Gold  Royal  Corp,  cites  five  major  benefits  from  stream  financing  
that  improve  the  operations  for  both  parties  involved  (Kalt).  First,  the  ability  for  both  firms  
to  mutually  share  the  risk  creates  an  agreement  that  would  normally  not  provide  as  much  
of  a  diversification  opportunity.  By  spreading  risk  across  multiple  levels,  and  between  two  
independent  firms,  will  allow  both  parties  to  attain  terms  that  might  not  otherwise  be  
possible.    
 
Second,  less  shareholder  dilution  allows  the  mine  operator  to  maintain  its  level  of  
ownership  without  diluting  current  shareholders  value.  This  is  probably  the  greatest  
      4  
 benefit  gained  from  the  mine  operator's  perspective  because  it  allows  the  mine  operator  to  
maintain  ownership  rights.  Whether  through  a  privately  held  or  publicly  traded  company,  
conserving  ownership  rights  allows  the  firm  to  operate  more  flexibly  and  creates  more  
opportunity  for  future  growth  and  acquisitions.  
 
Third,  royalty  streaming  allows  the  operating  company  to  finance  projects  on  a  location-­‐by-­‐
location  basis.  This  allows  the  firm  to  continue  exploring  and  producing  additional  streams  
and  mine  multiple  commodities.  The  ability,  as  a  mine  operator,  to  explore  and  produce  
additional  resources  can  minimize  risk  associated  with  the  long-­‐term  viability  of  a  less  
diversified  portfolio.    
 
Fourth,  mine  royalty  streaming  holds  accretive  value.  As  the  mine  grows  into  a  productive  
state,  the  operator  receives  more  efficiently  priced  capital  and  the  ability  to  produce  sooner  
than  otherwise  might  be  possible.  This  benefits  the  underwriting  financier  because  the  
sooner  the  mine  produces  resources,  the  quicker  investors  will  receive  a  return.  
 
TYPES  OF  AGREEMENTS:  
 
There  are  currently  three  main  types  of  royalty  stream  financing  agreements,  which  are  
either  based  upon  the  production  amount,  resource  market  value,  or  the  operations  net  
profit.  Net  smelter  return  (NSR)  agreements,  or  royalty  streams  based  on  the  amount  
produced,  appeal  to  mineral  rights  owners  because  they  are  able  to  capture  changes  in  
production  as  the  stream  generates  additional  resources.      
 
The  second  form  of  agreement  is  a  royalty  stream  based  on  the  value  of  production.  These  
contracts  are  highly  correlated  to  market  fluctuations  as  the  value  of  production  changes  
with  commodity  price  fluctuations.  The  third  type  of  agreement  is  a  net  profit  interest  
(NPI)  and  is  a  contract  based  upon  profit.  NPI’s  are  the  most  popular  type  of  stream  
financing  agreements  and  appeal  to  many  investors  because  it  allows  them  to  leverage  
changes  in  commodity  prices  while  limiting  the  mines  financial  and  economic  exposure.  
These  are  also  considered  to  be  the  most  profitable  and  highest  risk  contracts  in  the  
resource  streaming  space  (Callinan).      
 
Depending  on  the  current  phase  of  the  production,  royalties  are  categorized  as  key  
producing  assets,  advanced  stage  assets,  or  exploration  assets.  The  intention  behind  
structuring  operations  in  this  way  is  that  management  at  both  the  operating  mine  and  
investing  firm  can  easily  track  the  highest  and  best  use  of  funds.  As  projects  develop  into  
retirement,  management  is  able  to  efficiently  track  and  refocus  attention  on  the  most  
profitable  projects.  
 
WHY  SELL  A  ROYALTY  STREAM?  
 
Mines  often  sell  royalty  streams  to  fund  production  or  expansion  by  capitalizing  on  proven  
resources,  providing  a  significant  return  to  shareholders.    As  a  mine  grows,  so  does  the  
operator’s  need  to  minimize  risk.  This  type  of  financing  allows  operations  to  expand  while  
diversifying  the  financing  risk  derived  from  traditional  methods,  freeing  up  the  mine's  
capital  reserves  for  future  investment  prospects  that  might  offer  a  higher  return.  
 

      5  
 Managers  need  to  be  vigilantly  aware  of  the  use  of  capital  generated  from  stream  financing,  
as  industry  participants  warn  that  investing  this  cash  flow  in  non-­‐core  activities,  like  
general  and  administrative  costs,  greatly  lowers  future  return  (Kalt,  2).  Rather,  it  is  a  better  
use  of  funds  to  invest  in  future  prospects  that  can  add  greater  value  and  generate  future  
revenue.  Operating  managers  should  classify  royalty  streams  by  their  current  state  of  
production  and  seek  resource  stream  financing  for  prospective  projects  to  free-­‐up  capital  
and  provide  the  firm  with  consistent  growth  opportunities.      
 
OPTIMAL  AGREEMENT:  
 
The  optimal  stream-­‐underwriting  model  extends  traditional  financing  by  including  
methods  learned  from  the  Oil  and  Gas  industry  to  expand  possible  investment  
opportunities.  The  process  is  initiated  with  an  underwriting  financier  being  approached  (or  
reverse  contact)  by  a  mining  exploration  and  production  company  seeking  capital.  The  
mine  operator,  if  inclined  to  the  terms,  agrees  to  the  stream  agreement  and  uses  the  capital  
to  fund  operations  on  the  basis  of  future  production.  
 
Stream  financing  companies  must  maintain  a  vigilant  awareness  of  the  mine’s  rapidly  
changing  operating  environment  and  adequately  research  management’s  background  to  
achieve  premium  returns  on  prospective  stream  investments.    If  correctly  arranged,  the  
streaming  agreement  should  allow  the  financier  to  purchase  the  commodity  at,  or  beneath,  
the  lowest  cost  producer  in  the  market.  This  allows  the  investing  firm,  and  its  shareholders,  
to  profit  from  the  spread  between  the  spot  and  forward  rate.      
 
VALUATION:  
 
As  with  many  commodity  related  assets,  it  is  increasingly  difficult  to  value  corresponding  
financial  vehicles  as  the  market  environment  rapidly  fluctuates.  The  value  assigned  to  
royalty  streaming  agreements  is  derived  from  the  mine's  total  production,  contract  royalty  
rate,  and  remaining  life  of  the  mine.  Due  to  many  subjective  challenges  arising  from  the  
valuation  of  individual  royalty  streaming  firms  operating  in  this  space,  I  will  discuss  the  
basic  process  and  potential  risks  that  investors  might  face.    
 
The  unique  opportunity  created  by  using  royalty  stream  financing  provides  investors  with  
the  rare  chance  to  achieve  commodity  and  mining  exposure  while  remaining  significantly  
more  insulated  (relative  to  traditional  vehicles)  against  direct  industry  volatility.    But,  the  
nature  of  the  business  creates  many  challenges  when  comparing  financial  metrics  of  
royalty  streaming  firms  with  other  mine  companies.    
 
To  value  an  individual  firm,  or  even  a  specific  royalty  stream,  investors  typically  use  a  net  
present  value  calculation,  or  by  discounting  all  future  cash  flows  back  to  the  present.  
Critical  assumptions  must  be  made  as  to  the  proper  discount  rate,  time  period,  and  overall  
likelihood  of  achieving  forecasted  revenues.  Many  assumptions,  based  on  everything  from  
commodity  prices  to  the  cost  of  capital,  used  in  net  present  value  calculation  quickly  
change  with  market  conditions.    
 
If  the  prospective  royalty-­‐streaming  firm  is  publicly  traded,  investors  can  alternatively  
utilize  its  market  determined  share  price  as  a  more  dynamic  valuation  method.  Stock  

      6  
 markets  are  not  free  from  abnormalities  that  might  negatively  influence  price  performance  
but  the  incomparable  dissemination  of  information  results  in  a  more  accurate  valuation.      
 
Most  traditional  valuation  methods  fail  to  capture  the  true  value  of  royalty  streaming  firms.  
Because  the  nature  of  industry  strategy,  streaming  companies  not  directly  operating  
underlying  mine  projects,  investors  must  be  aware  that  financial  metrics  of  royalty  firms  
will  often  show  wide  variations  depending  on  the  stage  of  production.  Investors  must  take  
into  account  the  company’s  opportunity  for  future  prospects  and  a  slow  rate  of  initial  
company  growth  as  quality  streams  are  acquired.  To  capture  the  highest  return,  investors  
must  take  into  account  not  only  future  prospects  but  also  management’s  ability  to  navigate  
potential  challenges.    
 
Agreement  terms  are  often  unique  to  specific  projects,  increasing  the  total  number  of  
potential  options  available  for  financiers  to  extract  greater  value  from  market  fluctuations.  
Options  to  change  the  royalty  rate,  or  expand  production,  create  a  wide  array  of  potential  
investment  catalyst  and  significantly  increase  the  challenge  of  valuing  specific  streams,  let  
alone  entire  firm  portfolios.    
 

  Source:  Google  Finance  8/29/12  

 
Using  current  market  data  as  the  main  metric  for  comparison,  Silver  Wheaton  is  the  largest  
primary  operating  firm  in  the  royalty  streaming  space  with  a  market  cap  of  $12.24  billion  
as  of  August  29,  2012.  The  smallest  primary  competitor  is  Gold  Royalties  Corp,  with  a  
market  cap  of  $15.35  million  as  of  August  29,  2012.  As  witnessed  from  rapid  growth  in  the  
number  of  industry  participants,  the  application  of  royalty  streaming  as  a  financing  tool  in  
the  mining  industry  has  significantly  evolved  since  Schulich  and  Lassonde’s  initial  use.  

      7  
 3. Current  Environment  
 
The  current  market  environment  has  revealed  a  substantial  challenge  in  the  mining  and  
commodities  industry,  which  is  an  inability  to  efficiently  raise  capital.  Exploration  and  
production  (E&P)  companies  are  restricted  from  traditional  financing  avenues  because  of  
inadequate  cash  flow  and  the  high  degree  of  risk  associated  with  commodity  ventures.  
 
The  possible  solution  to  this  problem  lies  with  royalty  stream  financing  companies.  These  
firms  provide  the  options  necessary  to  bring  mining  and  precious  metal  projects  to  a  profitable  
state  by  financing  low  cost  operations  and  highly  skilled  management  teams.  In  compensation,  
the  streaming  company  typically  receives  a  guaranteed  principal  repayment  and  a  royalty  to  
purchase  the  future  production  stream  of  the  mine  at  a  predetermined  price,  creating  
significant  financial  upside  with  minimal  operating  risk  to  investors.  
 
Mine  royalty  streaming  is  the  direct  result  of  Schulich  and  Lassonde’s  efforts  pioneering  the  
space  and  creating  Franco-­‐Nevada  in  the  mid  1980’s.  They  overcame  initial  setbacks,  changed  
strategic  direction,  and  then  heavily  reinvested  back  into  the  firm.  The  stream-­‐financing  model  
allowed  Franco-­‐Nevada  to  rapidly  expand  through  use  of  its  consistent  stream  of  free  cash  
flow,  a  benefit  that  is  difficult  to  achieve  with  traditional  financing.    
 
In  April  of  2002,  Franco-­‐Nevada  went  on  to  sell  it’s  only  mine  (Midas,  aka  Goldstrike)  to  
Normandy  Mining,  in  exchange  for  a  5%  lifetime  royalty  and  20%  of  Normandy's  shares.  After  
continuing  to  acquire  additional  streams,  Schulich  and  Lassonde  instigated  a  bidding  war  
between  Newmont  Mining  and  AngloGold.  Newmont  won  the  battle  and  ultimately  bought  
Normandy,  in  addition  to  merging  with  Franco-­‐Nevada,  creating  the  world's  largest  gold  
producer.  
 
Newmont  held  the  original  Franco-­‐Nevada  Mining  Corporation  portfolio  until  it  spun  off  in  
2006,  resulting  in  an  even  larger,  gold  focused,  royalty  and  streaming  company  under  the  title  
of  the  Franco-­‐Nevada  Corporation.  The  2007  initial  public  offering  of  the  new  Franco-­‐Nevada  
raised  $1.1  billion;  the  largest  mine  offering  and  second  largest  Canadian  IPO  of  the  decade.  
Over  this  short  time  span,  the  industry  has  rapidly  grown  into  the  environment  we  have  today.    
Operating  in  the  mineral  resource  industry  poses  significant  risks  due  to  the  nature  of  the  
business,  but  Franco-­‐Nevada  COO  Geoff  Waterman  attributes  much  of  the  models  success  to  
the  margin  of  safety  that  royalties  provide.  He  explains  that,  “as  commodity  prices  move  down,  
you  get  very  little  change  in  your  royalty  streams…  the  margins  we  have  in  our  business  are  
about  85  percent,  which  is  double  the  amount  that  a  typical  business  would  have”  (Canadian  
Business  Journal).  With  global  market  volatility  remaining  elevated  and  no  immediate  solution  
to  numerous  population  growth  related  issues,  demand  for  commodities  is  likely  to  continue  
its  exponential  growth.      
 
EMERGING  MARKETS:  
 
Countries  that  are  considered  to  be  emerging  markets,  or  the  next  “up-­‐and-­‐coming”  economic  
leaders,  hold  a  dominant  role  influencing  the  current  market  environment.  Investments  in  
nations  such  as  the  BRICs  (Brazil,  Russia,  India,  and  China)  should  be  considered  as  an  integral  
element  of  portfolio  strategies.  Although  the  majority  lack  the  necessary  government  

      8  
 regulation  and  infrastructure  to  support  current  demographics,  economic  prosperity  derived  
from  these  nations  is  already  noticed  as  a  major  influence  in  the  global  economy.    
 
Capital  markets  greatly  affect  the  future  growth  of  countries  that  lack  the  proper  government  
structure  to  otherwise  fund.  Developing  countries  need  the  proper  infrastructure  to  support  
local  populations  and  future  investment,  without  which,  the  economic  climate  will  otherwise  
remain  extremely  unstable.  Because  resource  location  plays  a  dominant  role  throughout  the  
acquisition  and  production  phases  of  royalty  streaming,  maintaining  an  awareness  of  the  
current  operating  atmosphere  is  highly  advisable.  As  a  leading  source  of  research  on  emerging  
markets,  Goldman  Sachs  notes:  
 
“The  vast  majority  of  financing  continues  to  come  from  public  sources,  with  the  private  sector  
bearing  only  20-­25%  of  the  cost.  But  as  public  finances  are  more  strained  since  the  crisis,  the  
BRICs  will  have  to  rely  more  heavily  on  private  infrastructure  funding.  To  access  this,  the  
BRICs  have  to  continue  to  improve  the  business  environment  and  expand  financial  
intermediation  in  local  markets”  (Burgi,  Carlson,  Wilson).  
 
Prospective  investors  to  royalty  streaming  companies  should  be  aware  of  the  current  
environment  and  underlying  risks  associated  with  local  financial  market  intermediation.  The  
charts  below  display  both  the  number  of  infrastructure  projects  and  private  investments  as  a  
percent  of  GDP  throughout  the  BRICs.  As  a  relative  basis  of  growth  comparison,  the  number  of  
infrastructure  projects  funded  through  private  parties  appears  to  continue  along  its  increasing  
trend.  
 

 
  Source:  Burgi,  Carlson,  Wilson  
 
South  America  is  another  region  that  plays  a  significant  role  in  influencing  future  mining  
projects.  The  economies  of  these  countries  are  quickly  adapting  to  increases  in  population  
growth  and,  as  a  major  driver,  even  marginal  increases  in  commodity  demand  is  expected  to  
attract  increased  investment  activity  and  royalty  stream  financing  demand.  The  opportunity  to  
achieve  higher  returns  on  investments  in  economically  unstable  regions  should  be  carefully  
weighed  against  the  increased  risks.      
 
Resource  location  plays  a  dominant  role  throughout  the  acquisition  and  production  phases  of  
royalty  financing,  as  the  majority  of  “new”  streams  are  discovered  in  underdeveloped  areas.  

      9  
 This  greatly  increases  the  risk  associated  from  stream  underwriting  because  the  often-­‐
inconsistent  political  environment  provides  little  regulatory  protection.  As  the  demand  for  
commodities  increases  with  population  growth,  transitioning  economies  will  continue  to  push  
exploration  efforts  farther  into  undeveloped  markets.    
 
RISK  FACTORS:  
 
There  are  many  risk  factors  associated  with  royalty  streaming,  ranging  from  counterparty  
default  to  government  corruption.  As  discussed  above,  the  future  of  the  business  is  determined  
by  the  quality  of  streams  in  the  portfolio  and  the  firm’s  ability  to  acquire  new  interests  or  
expand  current  projects.  Due  to  the  nature  of  mining,  and  evolution  of  the  royalty  financing  
space,  underwriters  are  often  faced  with  limited  information  on  underlying  projects  or  
companies  and  often  relinquish  day-­‐to-­‐day  managing  control  of  the  project  in  the  terms  of  
agreement.  This  limited  control  increases  the  firms  portfolio  risk  because  of  natural  
disconnects  of  information  between  companies,  each  operating  on  distinct  motives.  It  is  critical  
for  royalty  financiers  to  actively  manage  stream  portfolios  so  the  firm  is  not  blindsided  by  
potentially  foreseeable  risks.    
 
A  primary  concern  of  most  financiers  is  counterparty  default.  Royalty  agreements  are  crafted  
in  a  way  to  limit  default  risk  by  backing  the  agreement  with  the  mine’s  resources,  equipment,  
or  other  assets  as  collateral.  With  collateral,  the  financing  companies  seem  protected  against  
counterparty  default.  But,  as  witnessed  through  the  2008  recession,  it  is  likely  that  any  
defaults  will  end  up  costing  the  streaming  company  more  than  originally  estimated.  As  an  
investor,  it  is  important  to  analyze  the  firm’s  robustness  when  investing  in  royalty  financiers  
so  that  unforeseen  costs  associated  with  defaults  are  not  a  threat  to  long-­‐term  viability.      
 
Litigation  costs  are  another  major  risk  factor  threatening  royalty  financiers.  Mining  creates  
many  environmental  and  socio-­‐economic  problems  that  often  face  heated  opposition,  leaving  
royalty-­‐financing  firms  open  to  liability.  In  order  to  protect  against  litigation  costs,  these  
companies  must  craft  agreements  in  a  way  that  release  all  operating  liability  to  the  mine  
controller.    
 
Supply  chain  threats  also  continue  to  be  a  major  risk  in  the  mining  space,  both  at  the  financing  
and  operating  levels.  Major  threats  to  supply  are  risks  derived  from  location  or  nature  of  the  
specific  mineral  resource  and  include,  but  are  not  limited  to,  sovereign  risk  and  resource  
scarcity.  A  current  example  of  sovereign  risk  is  witnessed  through  the  Euro-­‐zone,  specifically  
across  the  PIIGS:  Portugal,  Italy,  Ireland,  Greece,  and  Spain.  Although  the  concentration  of  
mineral  resources  is  low  in  this  region,  the  risk  of  governments  not  following  through  with  
financial  obligations  poses  a  significant  threat  with  implications  ranging  from  the  terms  of  
capital  to  daily  operations.    
 
Commodity  market  cycles  also  pose  a  threat  to  a  royalty  streaming  firm’s  profitability,  due  to  
the  fluctuations  in  spread  between  the  royalty  and  spot  rates.  To  minimize  this  risk,  firms  can  
form  terms  that  either  base  the  royalty  on  a  less  highly  correlated  factor  of  production  (NSR)  
or  arrange  the  terms  of  the  royalty  rate  to  track  current  market  conditions.  Also,  firms  can  
hedge  resource  production  to  leverage  returns  or  minimize  the  downside  risk  associated  with  
negative  shocks.  A  drawback  of  hedging  commodities  is  limiting  potential  return.  These  

      10  
 suggestions  should  be  considered  as  possible  improvements  to  the  royalty-­‐financing  model  
and  are  discussed  in  greater  depth  in  the  perspective  section  below.    
 
STRATEGY:  
 
As  the  royalty  financing  industry  becomes  increasingly  competitive,  the  evolution  of  firm  
strategy  and  management  principles  prove  to  be  significantly  important  to  success  going  
forward.  To  return  a  profit  to  shareholders,  management  must  seek  out  and  only  invest  in  the  
highest  quality  projects  attainable,  in  terms  of  both  the  operating  company  and  specific  stream  
resource.  The  firm  should  then  diversify  portfolio  holdings  amongst  a  variety  of  quality  assets  
to  mitigate  risk  factors  discussed  above.    
 
There  are  four  overriding  principles  critical  to  the  implementation  of  a  successful  strategy.  
Many  firms  have  suffered  losses  by  “blindly”  entering  into  terms  that,  due  to  a  specific  lack  of  
expertise,  leave  the  financier  unknowingly  vulnerable.  The  first  goal  of  the  company’s  strategy  
should  be  to  acquire  undervalued  projects  by  specifically  investing  in  streams  where  the  firm  
and  management  can  add  value.  Doing  so  will  limit  the  potential  for  losses  derived  from  a  lack  
of  expertise.  As  discussed  previously,  another  critical  element  to  a  successful  strategy  includes  
diversifying  the  portfolio  of  streams  by  operating  in  a  global  scope.  Holding  a  variety  of  
projects  limits  the  firm’s  potential  losses  derived  from  regional  environmental,  political,  and  
economic  risks.    
 
Another  key  element  to  a  successful  strategy  is  maintaining  a  high  level  of  liquidity.  This  allows  
the  firms  to  not  only  capitalize  on  opportunities  as  they  present  themselves  but  also  to  cushion  
against  unforeseen  losses.  In  addition,  a  lean  operating  structure  will  prove  beneficial  on  many  
levels  of  the  company.  This  will  allow  management  to  focus  only  on  value-­‐added  activities  and  
cut  waste  as  the  company  evolves.  Firms  that  follow  these  principles  in  strategy  when  entering  
into  streaming  agreements  position  themselves  to  achieve  higher  returns,  minimize  downside  
risk,  capitalize  on  opportunities,  and  cut  waste;  allowing  for  continuous  improvement  in  
operating  efficiency.  
 
A  challenge  faced  by  many  royalty  financiers  when  considering  prospective  investments  is  
what  scale  to  use  in  valuing  the  quality  of  streams.  Inconsistencies  across  term  agreements  and  
the  wide  variety  of  characteristics  unique  to  each  project  challenge  a  common  scalability  of  
quality.  The  mining  industry,  specifically  royalty-­‐streaming  space,  needs  to  create  a  set  of  
standards  to  rate  the  overall  investment  caliber  to  lessen  both  the  firm  and  individual  investor  
subjectivity.  If  a  quality  rating  was  utilized,  similar  to  the  credit  rating  in  the  bond  market,  
royalty  streaming  firms  and  individual  streams  would  be  much  more  comparable.    
 
MANAGEMENT:  
 
The  growth  of  royalty  financing  firms  has  created  unique  opportunities  for  its  management  
and  employees.  As  competition  amongst  firms  increases,  it  is  becoming  consistently  more  
important  for  participants  to  have  adequate  capital  on  hand  to  capture  high  quality  projects  as  
they  present  themselves.  If  management  overextends  the  firm’s  resources  or  ability  to  manage  
its  current  portfolio,  the  company  will  be  poorly  positioned  for  future  growth.    
 

      11  
 This  is  why  a  large  majority  of  firm  resources  are  directed  towards  researching  prospective  
streams  and  actively  managing  the  current  portfolio.  Franco-­‐Nevada  COO  Geoff  Waterman  
conveys  that,  “We’re  always  looking  for  new  acquisitions.  One  of  the  basic  premises  in  the  
royalty  model  and  in  our  business  philosophy  in  general  is  to  make  sure  that  we’re  well  funded  
when  others  aren’t…  that’s  when  you  get  the  best  opportunities”  (Canadian  Business  Journal).  
Successful  companies,  regardless  of  the  industry,  share  the  common  tie  of  being  prepared  and  
capitalizing  on  opportunities  as  they  are  found.  Franco-­‐Nevada  continues  to  successfully  
execute  this  strategy  as  a  dominant  player  in  the  royalty  streaming  space.    
 
ACCOUNTING  STANDARDS:  
 
The  range  of  accounting  standards  in  the  royalty  streaming  industry  varies  from  country  to  
country,  creating  an  environment  where  it  is  extremely  hard  to  value  both  royalty  firms  and  
individual  streams.  A  convergence  to  International  Financial  Reporting  Standards  (IFRS)  is  
taking  place  but  the  timing  of  when  the  transition  will  occur  is  unlikely  in  the  short  term.  The  
complex  differences  between  IFRS  and  other  standards,  like  the  Generally  Accepted  
Accounting  Principals  (GAAP),  have  greatly  slowed  the  process.    
 
In  the  United  States,  under  GAAP,  mineral  financiers  state  the  royalty  at  cost,  net  of  any  
accumulated  amortization  or  impairment.  The  asset  is  then  tested  for  recoverability  when  a  
change  in  operations  indicates  the  carrying  amounts  are  unrecoverable.  If  the  amount  is  
deemed  unrecoverable,  the  firm  then  writes  the  asset  down  to  fair  value.  
 
GOVERNMENT  ROYALTY  TAXES:  
 
Government  discrimination  in  the  treatment  of  royalty  taxes  is  common  throughout  the  mining  
industry,  regardless  of  resource  type.  The  major  threats  from  this  to  royalty  streaming  
companies  are  the  indirect  costs  of  discriminatory  government  regulation  being  passed  along  
to,  or  even  preventing,  future  mine  operations.  A  current  example  of  this  is  the  Chinese  
government’s  use  of  subsidies  to  regulate  mineral  production  within  a  certain  range,  in  
exchange  for  preferential  tax  treatment.    
 
Three  of  the  most  common  royalty  taxes  utilized  by  governments  are  ad  valorem,  unit  based,  
or  profit  based;  notice  the  categorical  similarity  with  the  types  of  royalty  stream  agreements.  
Ad  valorem  is  a  royalty  tax  based  on  the  value  of  production.  This  used  to  be  the  most  popular  
tax  utilized  by  government  but  a  transition  to  profit  based  taxes  has  taken  place  due  to  that  
fact  that  value  based  taxes  fail  to  fully  capture  what  the  government  considers  to  be  either  
firms  taxable  activity  (Otto,  Andrews,  Cawood,  Doggett,  Gui,  Stermole  F.,  Stermole  J.,  Tilton).        
 
In  recent  years,  a  major  point  of  contention  has  been  Australia’s  Resource  Super  Profits  Tax.  
The  Australian  government  is  increasing  the  tax  on  profits  that  exceed  a  certain  bound,  $75m  
profit  per  year  for  iron  ore  and  coal  producers,  to  retain  more  of  the  value  mined  within  the  
country’s  borders.  With  mining  a  critically  important  industry  in  Australia’s  economy,  the  
government  should  be  careful  not  to  drive  producers  away  with  increased  costs.  As  the  
demand  for  resources  increases  and  government  deficits  bloat,  it  would  not  be  surprising  to  
see  a  similar  “super-­‐profits”  tax  imposed  throughout  other  developed  economies.    
 

      12  
 This  tax  also  poses  a  threat  to  future  exploration  activity  in  Australia.  Due  to  increased  costs  of  
production  from  the  tax,  mine  operators  will  likely  be  pushed  into  new  markets  in  search  of  
lower  costs  of  production  and  explorative  growth  prospects.  As  this  demand  for  new  projects  
in  less  developed  regions  is  pushed  higher,  so  will  the  demand  for  royalty  stream  financing  due  
to  its  efficiency  over  traditional  financing  routes.    
 
 

      13  
 4. Competition  
 
Competition  amongst  firms  capable  of  providing  royalty  streaming  to  mineral  resource  
projects  has  drastically  increased  in  recent  years.  From  the  creation  of  Franco-­‐Nevada  in  1982  
until  the  early  2000’s  a  few  large-­‐scale  underwriters  have  dominated  the  space.  Variations  in  
the  business  model,  from  target  resource  to  stream  terms,  have  taken  place  as  the  industry  has  
quickly  grown.    
 
For  discussion  purposes,  mineral  stream  financiers  will  be  categorized  by  there  focus  of  
operations.  Primary  firms  are  characterized  by  their  sole  operating  purpose  of  acquiring  
streams.  Secondary  firms  operate  in  many  spaces  with  royalty  stream  financing  only  a  small  
portion  of  overall  company  focus.  The  final  category  of  firms  is  categorized  as  consultants,  a  
separate  division  focused  on  advising  or  raising  additional  private  investment  for  resource  
mining  firms  related  to  royalty  streaming.    
 
Graphed  below  is  the  overall  market  performance  of  the  eight  primary  competing  royalty-­‐
streaming  firms,  from  January  2000  to  September  2012.  The  portfolio  graphed  includes  Anglo  
Pacific  (APY),  Bullion  Monarch  Mining  (BULM),  Callinan  Royalties  Corp.  (CAA),  Franco-­‐Nevada  
(FNV),  Gold  Royalties  Corp  (GRO),  Royal  Gold  (RGLD),  Sandstorm  Gold  (SAND)  and  Metals  &  
Energy  (SND),  and  Silver  Wheaton  (SLW).  
 

 
  Source:  Google  Finance  8/29/12  
 
Although  not  all  firms  existed  when  the  graph  initiates,  you  can  see  the  overall  industry  has  
rapidly  grown  from  its  initial  roots.  Mine  operator  and  investor  interest  in  royalty  streaming  
firms  over  the  past  decade  has  proven,  and  will  likely  continue,  to  remain  a  major  catalyst  
driving  industry  growth.  As  more  junior  exploration  and  production  firms  learn  of  such  
equitable  financing  agreements,  and  investors  see  the  return  opportunities  and  niche  industry  
performance,  royalty  stream  financing  will  likely  become  a  common  and  integral  tool  utilized  
by  most  operators,  in  need  of  capital,  in  the  mineral  extraction  space.    
 

      14  
 Below  is  a  peer  comparison  of  major  competitors  in  the  royalty  streaming  space  using  the  
enterprise  value  to  cash  flow  metric.  This  takes  into  account  the  company’s  capital  structure,  
rather  than  just  equity  using  a  P/E  or  price  to  cash  flow  ratio,  and  provides  a  more  comparable  
representation  of  the  industry.  All  of  the  firms  are  fairly  similar  with  an  average  EV/CF  in  the  
14  to  16  range,  but  Sandstorm  Metals  is  the  outlier  due  to  the  current  phase  of  production  
across  its  portfolio  streams.    
 

 
  Source:  Sandstorm  M&E  
 
The  following  section  is  an  overview  of  the  primary  firms  competing  in  the  royalty  stream  
financing  space  with  an  additional  summary  of  secondary  and  consulting  firms  in  the  
appendix.    
 

      15  
 Primary  Firms  
 
Sandstorm:  
 
The  Sandstorm  Company  operates  under  two  distinct  streaming  divisions,  Sandstorm  Metals  
and  Energy  (SND)  and  Sandstorm  Gold  (SAND).  Each  business  segment  operates  
independently  but  is  led  by  President  and  CEO  Nolan  Watson.    
 
Sandstorm  provides  junior  mining  and  energy  exploration  and  production  companies,  in  both  
diversified  metals  &  energy  and  gold  commodities,  the  funding  necessary  to  transition  projects  
into  a  productive  state.  In  compensation,  the  firm  requires  a  guaranteed  principal  repayment  
(~5  yrs)  in  addition  to  a  lifetime  royalty  on  the  production  stream.  This  allows  Sandstorm  to  
buy  the  commodity  at  a  fixed  price  at  or  below  the  lowest  cost  producer  in  the  market.        
 
Sandstorm  operates  in  a  favorable  business  structure  by  incorporating  in  Barbados,  leading  to  
minimal  income  taxes  and  higher  revenues  generated  relative  to  tax-­‐abiding  firms.  This  poses  
a  risk  to  future  operations  if  government  officials,  in  operating  regions  of  the  firm,  seek  
recovery  of  unpaid  taxes.  Sandstorm  has  reduced  the  risk  associated  with  mining  E&P  
companies  by  requiring  a  minimum  cash  flow  guarantee  that  is  typically  backed  by  a  senior  
secured  lien.  This  guarantee  has  helped  the  firm  minimize  potential  losses  by  liquidating  the  
borrower’s  assets  in  the  event  of  a  write  off.  Sandstorm  M&E  has  further  minimized  risk  by  
diversifying  its  holdings  amongst  coal  (thermal  and  met),  oil,  natural  gas,  and  copper.    
 
Sandstorm  Gold  currently  holds  seven  streams  including  the  Aurizona  Gold,  Black  Fox,  Santa  
Elena,  Bachelor  Lake,  Ming,  Mt.  Hamilton,  Coringa  and  Cuiu  Cuiu,  Bracemac  McLeod,  and  
Summit  Mine  projects.  Sandstorm  Metals  &  Energy  holds  a  portfolio  of  six  streams  including  
Bracemac  McLeod  (Copper),  Gordon  Creek  (Natural  Gas),  Rex  No.  1  &  Rosa  (Coal),  and  Two  
Creek  &  Strathmore  (Oil).    
 
Nolan  Watson,  CEO  of  Sandstorm  Metals  &  Energy  and  Sandstorm  Gold,  has  provided  
consistent  returns  and  opportunities  for  growth  through  his  influence  in  shaping  the  royalty  
streaming  space.  Watson  started  his  career  with  Deloitte  and  Touche,  performing  business  
valuations  and  merger  and  acquisition  support.  In  2004,  he  transitioned  into  a  controller  role,  
becoming  the  first  employee  of  Silver  Wheaton  under  the  guidance  of  Ian  Tefler  and  eventually  
the  youngest  CFO  to  ever  be  on  a  NYSE-­‐listed  firm.  During  his  tenure  as  CFO,  Watson  helped  
grow  Silver  Wheaton  from  $200  million  to  a  valuation  of  $3  billion  in  2008.    
 
Key  management  includes  Nolan  Watson,  President,  CEO,  &  Director,  David  Awram,  Executive  
VP  &  Director,  and  Erfan  Kazemi,  CFO.  The  firm  is  based  in  Vancouver,  BC.  
 
www.sandstormmetalsandenergy.com  
 
www.sandstormgold.com  
 

      16  
 Silver  Wheaton  (SLW):  
 
Silver  Wheaton  is  the  world's  largest  silver  focused  streaming  company,  with  17  operating  
mines  and  4  projects  in  development  stage.  Silver  Wheaton's  profits  are  subject  to  minimal  
income  taxes  due  to  its  incorporation  in  Barbados  and  the  Cayman  Islands.  This  poses  a  risk  to  
future  operations  if  government  agencies  file  to  recover  back  taxes,  potentially  threatening  the  
firm’s  competitiveness  in  the  royalty  streaming  space.    
 
The  company  holds  notable  streams  in  Barrick’s  Pascua-­‐Lama,  Hudson  Bay’s  flagship  777  
mine,  and  the  Constancia  project.  The  firm  is  able  to  provide  decent  shareholder  returns  by  
maintaining  a  low  level  of  fixed  costs  at  $4  per  ounce  of  silver,  resulting  in  a  44%  gain  in  stock  
price  over  the  past  two  years  (August  2010-­‐2012).    
 
Silver  Wheaton  has  played  a  pivotal  role  in  developing  royalty  streaming  due  to  its  silver  
specific  focus  and  innovative  business  model.  The  firm  extended  the  traditional  royalty  model  
into  a  form  designed  to  cushion  volatility  through  a  net  of  current  profit  and  fixed  cost  
agreement.  Former  Silver  Wheaton  employee  Nolan  Watson  left  the  firm  and  applied  similar  
principles  in  starting  Sandstorm.    
 
www.silverwheaton.com  
 
Franco-­‐Nevada  (FNV):  
 
Franco  Nevada  is  the  oldest  royalty  stream  financing  firm.  The  company’s  founders,  Seymour  
Schulich  and  Pierre  Lassonde,  are  considered  godfathers  in  the  resource  mining  space.  The  
firm  was  established  with  the  intent  of  exploring  and  producing  gold  throughout  Nevada  but  
after  a  couple  mediocre  attempts,  Schulich  and  Lassonde  transitioned  Franco-­‐Nevada  into  the  
world's  first  gold  royalty  company.  
 
The  firm’s  stock  provides  a  better  alternative  than  traditional  investment  prospects,  a  more  
efficient  vehicle  in  gaining  exposure  to  the  underlying  market.  Franco-­‐Nevada  holds  a  portfolio  
of  royalty  assets  on  gold,  precious  metals,  other  minerals,  and  oil  &  gas  streams  (see  table  
below).  The  firm  operates  with  a  strategy  of  acquiring  high  quality  and  high  margin  assets,  
based  on  increasing  the  net-­‐asset-­‐value  of  the  firm  on  a  per  share  basis,  and  maintaining  a  high  
level  of  cash  flow  to  capitalize  on  attractive  prospects  (Franco-­‐Nevada).  The  company  not  only  
focuses  on  creating  new  royalty  streams  but  also  acquires  royalties  from  outside  investors.  
Franco-­‐Nevada  holds  a  total  of  342  assets,  with  178  producing  and  25  in  the  advanced  stage  of  
production.    
 
 

      17  
 The  company  strives  to  include  only  the  most  attractive  assets  but  states  that  it’s  open  to  
acquiring  new  resources.  Gold  remains  the  predominant  revenue-­‐generating  commodity  for  
Franco-­‐Nevada,  accounting  for  75%  of  total  revenue.  Overall,  the  company  seeks  to  maintain  a  
portfolio  of  asset  in  politically  stable  regions  to  avoid  increased  operating  volatility  by  only  
holding  17%  of  revenue  generating  assets  in  major  mining  regions  other  than  the  United  
States,  Canada,  Mexico,  and  Australia.    
 
The  firm,  “anticipates  revenues  in  the  $430  to  $460  million  range  this  year,  and  it  has  $987  
million  cash-­‐in-­‐hand,  $95  million  in  marketable  securities  and  an  undrawn  $175  million  
revolving  credit  line”  (Keevil).  Franco-­‐Nevada  stock  has  had  ~65%  gain  over  the  past  two  
years  with  a  market  cap  of  $7.51  billion.    
 
Cosmos  Chiu,  an  RBC  World  Markets  analyst,  “believes  Franco-­‐Nevada  will  continue  to  grow  its  
net  asset  value  both  organically  and  through  acquisitions,  where  recent  market  conditions  
have  been  tough  on  mining  companies  and  their  ability  to  gain  financing.  One  pushback  from  
investors  on  Franco-­‐Nevada  has  always  been  that  the  shares  are  expensive.  We  disagree  with  
that  assessment,  but  rather  would  argue  that  the  share  price  outperformance  reflects  Franco-­‐
Nevada’s  ability  to  generate  shareholder  value”  (Keevil).  Although  the  company  has  become  a  
dominant  intermediary  in  the  royalty  streaming  space,  Franco-­‐Nevada  still  appears  to  be  an  
attractive  investment  based  on  its  growth  ability.    
 
Franco-­‐Nevada  maintains  offices  in  the  United  States,  Canada,  Australia,  and  Barbados,  and  is  
led  by  David  Harquail,  President,  CEO,  and  Director,  who  previously  held  executive  positions  
with  Newmont  Mining.    
 
www.franco-­‐nevada.com  
 
Bullion  Monarch  Mining  (BULM):  
 
Bullion  Monarch  Mining  is  based  in  Utah  and  operates  as  a  gold-­‐focused  exploration  and  
royalty  company,  in  addition  to  managing  three  subsidiaries:  Dourave  Canada,  Dourave  Brazil,  
and  EnShale.  The  firm’s  current  portfolio  of  properties  includes  the  Carlin  Royalty  (Nevada),  
North  Pipeline  (Nevada),  Maggie  Creek  (Nevada),  Ophir  Property  (Utah),  and  Gold  Mountain  
(Oregon).  Additional  operating  efforts  include  the  exploration  of  gold  and  bauxite  in  Brazil  
through  its  subsidiary  Durave  Brazil,  currently  holding  four  major  projects.  The  company  is  
also  working  to  develop  the  technology  to  extract  oil  from  shale  rock  through  its  subsidiary  
EnShale.  In  2011,  the  firm  generated  $6.2  million  in  revenue  and  $0.05  earnings  per  share.    
 
Bullion  Monarch  was  recently  acquired  by  Eurasion  Minerals  Inc.,  resulting  with  the  firm  being  
a  wholly  owned  subsidiary  of  Eurasion  Minerals.  Key  management  includes  Don  Morris,  
Chairman  &  CEO,  and  James  Morris,  President.  Mr.  Don  Morris  is  often  recognized  for  his  
involvement  with  the  development  of  the  Carlin  Trend  in  Nevada.    
 
www.bullionmm.com  
 
   

      18  
 Royal  Gold  (RGLD):  
 
Royal  Gold  currently  operates  with  a  focus  on  acquiring  and  managing  precious  metal  
royalties,  with  a  predominant  gold  focus.  The  company’s  current  portfolio  holds  26  producing  
properties  and  26  development  stage  properties.  Strong  financial  results  over  the  past  two  
years  have  placed  Royal  Gold  in  an  advantageous  position  to  capture  a  larger  market  share  of  
the  streaming  space.    
 
The  company  has  produced  a  compounded  annual  growth  rate  over  the  past  decade  of  28%  in  
revenue  per  share,  37%  in  EBITDA  per  share,  and  35%  in  earnings  per  share  (Royal  Gold).  
Over  the  past  two  years,  Royal  Gold  stock  has  achieved  a  73%  return  and  currently  trades  at  a  
stock  price  near  it’s  52-­‐week  high  of  $85.  The  firm  is  based  in  Denver,  CO.  Key  management  
includes  Tony  Jensen,  President  and  CEO,  Stefan  Wenger,  CFO,  and  Karen  Gross,  VP  and  
Corporate  Secretary.  Mr.  Jensen  has  a  wide  array  of  industry  experience,  previously  working  
on  the  Cortez  Joint  Venture  and  Placer  Dome.  
 
www.royalgold.com  
 
Anglo  Pacific  Group  (APY.TSX):  
 
The  Anglo  Pacific  Group  holds  a  broad  portfolio  of  royalties  on  commodities  in  raw  materials,  
precious  metals,  and  uranium.  Company  strategy  includes  the  acquisition  of  royalties  on  long-­‐
life  minerals  that  are  located  in  politically  stable  regions.  Major  producing  streams  are  located  
in  Brazil  (Iron  Ore),  Europe  (Gold),  and  Australia  (Coal).  The  firms  current  portfolio  allocation  
includes  53%  of  assets  in  Coal,  21%  in  Iron  Ore,  11%  in  Gold,  4%  in  Chromite,  3%  in  Copper,  
3%  in  Uranium,  and  the  rest  spread  amongst  platinum,  nickel,  and  other  commodities.    
 
Anglo  Pacific  currently  trades  at  a  stock  price  of  $4,  with  a  $438.42  million  market  cap.  Out  of  
all  primary  competitors  in  the  royalty  streaming  space,  the  Anglo  Pacific  group  is  positioned  
for  strong  growth  due  to  the  majority  of  assets  being  in  the  development  or  pre-­‐development  
stage.  The  firm’s  head  office  is  based  in  London,  UK.  Key  management  includes  Peter  Boycott,  
Executive  Director  and  Chairman,  and  John  Theobald,  Executive  Director  &  CEO.    
 
www.anglopacificgroup.com  
 
Callinan  Royalties  Corp.  (CAA.V):  
 
Callinan  Royalties  Corp.  is  one  of  the  newer  competitors  in  the  royalty  streaming  space,  with  
Canadian  mining  roots  dating  back  to  1927.  The  firm  split  into  two  separate  divisions  in  2011,  
creating  two  distinct  companies  that  are  focused  purely  on  exploration  and  royalties,  
respectively.  The  firm  is  known  for  its  dominant  acquisition  of  a  royalty  on  the  Hudson  Bay  
777  mine.    
 
The  company’s  stock  has  produced  a  40%  return  over  the  past  two  years.  Key  Management  
includes  Roland  Butler,  President  &  CEO,  and  Tamara  Edwards,  CFO.  Mr.  Butler  held  a  
dominant  role  as  co-­‐founder  of  Altius  Minerals  Corp.  and  is  currently  the  director  of  Millrock  
Resources  Inc.    
 

      19  
 www.callinan.com    
 
Gold  Royalties  Corporation:  
 
Gold  Royalties  Corp  is  a  mining  royalty  company  focused  on  acquiring  both  operating  and  
prospective  interests  throughout  Canada.  The  current  royalty  portfolio  includes  agreements  
on  seven  producing  and  exploratory  streams;  comprised  of  commodities  in  gold,  nickel,  silver,  
zinc,  lead,  platinum,  copper,  and  other  precious  metals.  The  Gold  Royalties  team  is  led  by  Ryan  
Kalt,  founder  and  CEO,  and  sources  multiple  industry  advisors  to  consult  on  prospective  
acquisitions.  The  firm  was  founded  in  2012  and  is  based  in  Calgary,  Alberta,  CA.    
 
www.goldroyalties.ca  
 
*  See  appendix  for  an  overview  of  secondary  and  consulting  firms  in  the  royalty  streaming  
industry.    
 

      20  
 5. Perspective  
 
Through  a  critical  analysis  of  the  royalty  streaming  industry  it  becomes  clear  where  the  true  
value  of  the  operation  is  derived.  Without  a  portfolio  of  quality  reserves  and  proven  
management  at  both  the  financing  and  operating  firms  the  underwriter  will  be  left  vulnerable  
to  numerous  threats  that  otherwise  are  manageable.  Future  successes  in  the  royalty  financing  
space  are  contingent  upon  the  project’s  true  value  and  the  quality  of  resources  and  operators.    
 
Richard  Karn,  managing  editor  of  the  Emerging  Trends  Report,  conveys  the  importance  of  
producers  to  hedge  future  production  by  stating:  
 
Difficulty  arranging  financing…  has  been  an  issue  for  small  companies  since  at  least  2006  
or  2007  and  was  exacerbated  by  the  global  financial  crisis  and  its  aftermath.  What  
complicates  the  financing  picture  considerably  for  specialty  metals  companies  is  that  
many  specialty  metals  cannot  be  hedged  by  selling  production  forward.  From  a  
commercial  point  of  view,  if  you  cannot  hedge  your  protection  to  protect  the  bank,  your  
terms  –  if  you  can  get  them  –  will  be  very  onerous.  I’d  prefer  a  company  to  hedge  15-­20%  
of  its  production  to  guarantee  its  mine  goes  into  production”  (Sylvester).  
 
Royalty  stream  financing  has  gained  more  attention  because  it  allows  the  mine  operator  to  
hedge  the  acquisition  of  capital  with  future  production  and  allows  end-­‐users  to  set  the  terms  of  
agreement  and  maintain  a  higher  level  of  price  secrecy  (Sylvester).  Because  these  assets  are  
illiquid  and  not  heavily  traded,  prices  are  determined  from  each  party’s  interest  in  the  terms  of  
agreement.    
 
COMMODITY  HEDGE:  
 
From  a  royalty  financier’s  perspective,  depending  on  the  terms  of  a  streaming  agreement,  
future  cash  flow  remains  subject  to  fluctuations  in  underlying  commodity  prices.  Royalty  
streaming  companies  fund  mine  production  with  an  initial  capital  outlay  and  then  benefit  from  
a  later  royalty  on  the  production  amount,  resource  market  value,  or  operations  net  profit.  Even  
though  royalty-­‐streaming  companies  rarely  take  hold  of  the  physical  resource,  negative  price  
movements  in  the  interim  threaten  future  cash  flow.    
 
As  an  improvement  to  the  royalty  financing  strategy,  it  is  advisable  to  structure  derivative  
contracts  that  capture  upward  price  mobility  and  protect  against  unforeseen  interest  
rate/commodity  shocks.  Because  the  space  is  relatively  young,  finding  counterparties  to  take-­‐
on  the  risk  associated  with  illiquid  resources  poses  a  challenge.  Another  downside  to  
commodity  hedges  is  potentially  limiting  upward  price  movements.  If  effectively  crafted,  the  
royalty-­‐streaming  firm  can  lower  its  portfolio  risk  while  increasing  potential  revenue.    
 
The  Chicago  Mercantile  Exchange  (CME)  offers  futures  and  options  contracts  on  only  the  most  
heavily  traded  and  liquid  metals,  not  including  many  of  the  resources  that  royalty-­‐financing  
companies  often  stream.  Although,  major  firms  competing  on  the  fluctuation  of  gold  or  silver  
pricing  can  benefit  from  the  wide  array  of  financial  products  offered.  Below  is  a  chart  of  the  
current  metals  contracts  offered  by  the  CME:  
 

      21  
  
  Source:  Chicago  Mercantile  Exchange  
 
The  use  of  a  commodity  hedge  not  only  increases  financing  costs  but  also  raises  the  regulatory  
compliance  burden.  Increased  financing  costs  are  incurred  from  the  active  management  of  a  
portfolio  of  contracts  and  increased  regulatory  burdens  arise  from  compliance  with  
heightened  accounting  standards  and  government  oversight.  Royalty  streaming  firms  must  
weigh  the  increased  costs  of  using  these  contracts  against  the  benefits  gained  from  decreased  
volatility  in  price  movements.  Consulting  with  an  advisor  to  arrange  outside  sources  as  
counterparties  to  take  on  such  risk  could  lead  to  more  amiable  terms,  relative  to  the  standard  
contracts  listed  above.    
 
As  an  alternative  to  traditional  streaming  agreements  with  commodity  hedges,  industry  
participants  could  move  to  spot  based  pricing  in  contract  terms.  Spot  based  pricing,  without  a  
hedge,  would  protect  financiers  against  negative  fluctuations  because  the  royalty  rate  would  
follow  current  market  conditions,  but  leave  the  mine  operator  subject  to  negative  price  
adjustments.  With  this  type  of  agreement,  the  increased  costs  of  spot  based  pricing  would  
benefit  the  financier  greater  than  the  operator,  leading  to  a  less  equitable  royalty  rate.  But,  if  
the  terms  of  agreement  only  include  spot  based  pricing,  the  royalty  streaming  company  could  
utilize  an  additional  hedge  against  the  market  to  arbitrage  price  fluctuations.  
 

      22  
 STREAM  SECURITIZATION:  
 
Additional  improvements  to  the  current  model  include  the  possible  securitization  of  royalty  
streams  to  diversify  the  financier’s  portfolio  risk.  The  limited  liquidity  across  the  majority  of  
mining  companies  restricts  available  financing  options.  If  royalty  financiers  bundled  and  sold  
streams  in  tranches,  similar  to  the  securitization  of  mortgages  as  collateralized  debt  
obligations  (CDOs),  this  would  create  a  more  liquid  market  to  trade  resource  vehicles  and  
propel  the  number  of  firm  acquisitions.    
 
This  could  create  an  active  market  where  investors  would  buy  and  sell  bundles  of  royalty  
streams.  Projects  might  be  categorized  by  resource  quality,  mine  location,  or  length  of  
forecasted  production.  The  pools  of  illiquid  streams  would  be  converted  into  financial  
instruments,  potentially  lowering  industry  volatility  and  increasing  liquidity,  financing,  and  
term  opportunities  for  both  parties.  Below  is  a  graphic  of  risk  and  return  characteristics  for  the  
mortgage  securitization  process  that  could  be  similarly  applied  to  the  mine  financing  space.  
 

 
Source:  Splettstoesser  

      23  
 Looking  Forward  
 
Developed  economies  tend  to  be  the  major  consumer  of  resources  and  undeveloped  economies  
largely  hold  the  producing  assets.  Population  growth  continues  to  increase  exponentially,  yet  
the  available  resources  and  infrastructure  to  support  a  society  of  this  size  remains  fairly  
unchanged,  forcing  many  governments  to  continue  to  increase  resource  regulation  in  attempt  
to  sustain  their  citizens.    
 
The  majority  of  developed  economies  will  likely  maintain,  or  even  decrease,  current  mineral  
production  due  to  increased  regulation  and  environmental  costs,  while  undeveloped  
economies  are  likely  to  increase  mineral  production  through  foreign  investments.  A  
convergence  between  developed  regulatory  standards  is  likely  to  take  place,  as  the  lack  of  
consistent  and  transparent  policies  allows  for  exploitation.  A  favorable  regulatory  
environment  should  accelerate  this  transition  in  mine  locations  from  developed  to  
undeveloped  markets.  
 
INVESTMENT  OPPORTUNITIES:  
 
Opportunities  for  future  investment  within  the  space  continue  to  expand  due  to  increases  in  
global  resource  demand,  commodity  price  volatility,  and  volatility  across  financial  markets.  
The  current  supply  of  resources  is  limited  by  the  economic  feasibility  of  mining  projects.  Due  
to  this,  as  demand  pushes  resource  prices  higher,  the  required  return  that  makes  the  project  
economically  feasible  (cost-­‐benefit  trade  off)  is  pushed  lower.  Projects  that  were  unfeasible  
before  are  now  profitable,  spurring  increased  exploration  and  mine  expansion.    
 
The  commodities  market  has  seen  drastic  growth  over  the  past  two  decades,  with  much  of  the  
skyrocketing  demand  for  metal  and  mineral  consumption  attributed  to  emerging  markets.  
China  has  become  the  largest  consumer  of  refined  metals  through  its  growth  in  infrastructure  
spending,  with  metals  consumption  today  17-­‐times  higher  than  in  1990  (The  World  Bank).  As  
the  graphs  below  display,  China’s  metals  consumption  and  intensity  relative  to  GDP  have  
drastically  increased  over  this  period.    
 

 
  Source:  The  World  Bank  

      24  
 High  demand  in  China  has  been  instrumental  in  driving  the  commodity  super-­‐cycle  over  the  
past  two  decades  (Cuddington,  Jerrett).  To  protect  against  price  volatility  associated  with  
super-­‐cycles,  investors  must  constantly  seek  more  efficient  vehicles  that  offer  higher  returns  
and  lower  risk.  Mineral  resource  streaming  allows  for  this  opportunity  while  maintaining  
flexibility  in  the  terms  of  agreement.    
 
Another  key  factor  driving  demand  for  mineral  resource  streaming  are  the  unstable  global  
financial  markets.  They  have  been  driven  by  crisis  and  uncertainty  over  the  past  five  years,  
starting  with  the  crash  of  the  housing  market,  leading  to  global  government  stimulus  and  
bailouts.  Ramifications  stemming  from  these  events  have  compounded,  allowing  for  drastic  
fluctuations  in  prices  as  markets  clear.    
 
The  funding  of  large-­‐scale  conglomerate  mine  operators  typically  comes  through  internal  or  
partner  sources,  like  a  separate  financing  division  or  independent  financial  institutions  that  
can  lend  to  these  borrowers  given  their  massive  scope  and  amount  of  assets  held  as  collateral.  
Their  ability  to  acquire  capital  is  less  challenging  relative  to  smaller  operations.  Junior  
exploration  and  production  companies  struggle  to  receive  capital  through  traditional  financing  
routes  due  to  the  high  risk  associated  with  explorative  ventures  and  overall  limited  company  
scope.        
 
GROWTH  OUTLOOK:  
 
In  the  short  term,  the  potential  for  growth  in  mineral  resource  streaming  is  restricted  by  a  
supply  of  quality  mines.  Increases  in  metal  demand  support  explorative  and  expansive  activity  
by  driving  commodities  prices  higher.  The  cost-­‐benefit  of  individual  mines  adjusts  as  
underlying  markets  fluctuate,  resulting  in  some  projects  that  were  previously  economically  
unfeasible  now  being  profitable.    
 
Main  drivers  of  industry  growth  for  royalty  streaming  companies  are  the  underlying  
commodity  prices  and  the  prospects  for  future  acquisition.  Commodity  prices  will  likely  slow  
in  growth  relative  to  performance  over  the  past  decade  but,  as  discussed  above,  major  
population  shifts  among  emerging  markets  will  be  the  main  driver  of  consumer  demand  and  
ultimately  increase  the  capital  requirement  necessary  for  mine  operators  to  expand.  The  
robustness  of  a  royalty  streaming  company  significantly  influences  these  growth  drivers  and  
future  expansion  opportunities.    
 
A  challenge  for  royalty  streaming  firms  is  managing  operating  and  capital  expenditures.  As  a  
firm’s  portfolio  of  streams  grows,  industry  participants  have  noticed  consistent  increases  in  
both  of  these  costs.  In  order  to  provide  consistent  and  strong  company  growth,  management  
will  need  to  control  these  increases  to  maintain  profitability.    
 
Large  mining  firms  typically  hold  the  highest  quality  projects  and  are  offered  the  best  
explorative  ventures  before  smaller  companies  because  of  established  firm  networks  and  
resources.  These  larger  firms  often  categorize  the  funding  of  projects  by  the  type  of  operation,  
either  Brownfield  or  Greenfield.  Brownfield’s  are  usually  less  costly  and  considered  the  
expansion  of  an  already  claimed  mine.  Greenfield’s  are  the  exploration  of  a  completely  
separate  region  and  often  result  in  the  formation  of  a  smaller  exploration  subsidy  of  the  larger  
company.  Small  scale  mine  operators  are  left  to  extend  on  previously  mined  claims  or  to  

      25  
 explore  regions  not  already  claimed  by  larger  operators.  This  restricts  growth  in  the  short  
term  by  confining  industry  potential  to  the  current  supply  of  quality  projects.    
 
An  additional  factor  that  significantly  influences  growth  in  the  short  term  is  government  
interference  through  royalties,  subsidies,  and  the  nationalization  of  private  firms.  Government  
royalties  are  a  tax  on  the  mining  of  a  resource  intended  for  the  larger  good  of  the  country.  
Increased  costs  of  production  will  drive  companies  to  enter  new  markets  in  order  to  remain  
competitive.  It  is  important  for  governments  and  mining  firms  to  work  together  throughout  
any  implementation  process  so  they  do  not  debase  the  investment  climate.  Local  operating  
firms  create  the  mining  industry;  the  government  should  utilize  their  knowledge  and  resources  
when  analyzing  the  effects  of  a  royalty  (Otto,  Andrews,  Cawood,  Doggett,  Guj,  Stermole  F.,  
Stermole  J.,  Tilton).  As  a  source  of  growth,  certain  government  royalty  schemes  can  be  
implemented  in  a  fashion  that  holds  greater  benefit  to  both  sides  and  remains  attractive  to  
future  investment.    
 
Governments  have  gone  so  far  as  to  nationalize  firms  or  subsidize  resources  to  promote  
political  and  social  objectives.  The  nationalization  of  private  firms,  like  YPF  Oil  in  Argentina,  
threatens  the  investment  climate  of  certain  regions  due  to  fears  of  similar  policies  being  
applied.  Richard  Karn,  managing  editor  of  the  emerging  trends  report,  notes  the  challenges  
faced  by  miners  in  parts  of  Southern  Africa,  Indonesia,  and  Mali.  Karn  believes  that:  
 
“Nationalization  risk  is  the  biggest  single  threat  facing  the  industry  in  the  years  ahead…  
mining  projects  are  easy  targets  for  corrupt  politicians  intent  on  enriching  themselves  and  
their  cronies  by  cloaking  their  greed  behind  nationalist  rhetoric  about  how  mining  
projects  exploit  the  peoples  resources”  (Sylvester).  
 
Governments  should  be  careful  not  to  degrade  market  integrity  by  over  taxing  firms  or  to  
heavily  subsidizing  resources,  manipulating  the  economy  by  forcing  disequilibrium  between  
resource  supply  and  consumer  demand.  Erratic  government  interference  will  inhibit  industry  
growth  and  drive  investors  to  enter  more  appealing  markets.    
 
In  the  long  term,  recovering  financial  markets  will  push  demand  for  royalty  streaming  higher  
as  mine  operators  in  search  of  capital  choose  this  option  as  their  most  equitable  financing  
route.  Although  upward  price  mobility  is  limited  by  streaming  agreements,  the  mine  operating  
environment  over  the  long  term  is  expected  to  maintain  pace  with  forecasted  consumer  
demand  increases,  also  raising  the  need  for  alternative  financing  avenues.    
 
Shifts  of  mid-­‐level  and  major  mining  firms  turning  from  traditional  financing  options  to  royalty  
streaming  are  already  becoming  more  predominant,  as  one  of  the  latest  deals,  “Inment  Mining  
Corp…  plans  to  raise  roughly  $1  billion  from  a  stream  deal  to  fund  a  portion  of  the  construction  
costs  for  it’s  $6.2  billion  Cobre  Panama  copper  project  in  Central  America”  (Rocha).  As  mine  
operators  search  for  the  most  efficient  borrowing  terms  to  fund  production,  a  shift  away  from,  
or  blend  of,  the  traditional  financing  model  should  continue  to  drive  royalty  stream  financing  
demand.    
 

      26  
 COMPETITION:  
 
The  royalty  financing  industry  has  become  somewhat  monopolized  by  a  handful  of  major  
large-­‐scale  firms  because  large  royalty  financiers  typically  hold  a  wider  portfolio  of  projects  
and  are  often  adequately  funded  to  take  on  riskier  ventures.  This  results  in  a  potential  for  
higher  profits  and  a  margin  of  safety  to  protect  against  losses,  benefits  that  small-­‐scale  firms  
struggle  to  achieve.    
 
The  business  cycle  of  large-­‐scale  royalty  financiers  also  supports  continued  growth.  A  
consistent  stream  of  cash  flow,  once  mine  operations  come  into  production,  allows  the  
flexibility  to  fund  acquisitions  as  they  arise.  Small-­‐scale  financiers  battle  to  initiate  this  cycle  
due  to  the  lack  of  capital  necessary  to  acquire  projects  as  they  appear  and  the  minimal  
portfolio  of  mines  held,  leaving  the  firm  highly  concentrated  across  a  low  number  of  assets.  
Investors  need  to  be  aware  of  the  tradeoff  between  risk  and  reward  in  regard  to  operations  
strategy,  as  firm  size  directly  reflects  operating  scope.    
 
GLOBAL  DEMAND:  
 
Overall,  global  demand  for  resource  commodities  is  expected  to  continue  its  upward  growth  
trend  as  emerging  markets  transition  economies  and  large  population  cohort’s  transition  out  
of  poverty.  The  fastest  growing  underdeveloped  economies  are  likely  to  become  the  next  
international  trade  leaders,  with  large  advancements  in  technology  and  socio-­‐economic  
policies  already  taken  place.    
 
Goldman  Sachs  economists  have  categorized  up-­‐and-­‐coming  countries  into  two  groups,  
defined  by  the  acronym  BRICs  and  the  N-­‐11  (next  eleven).  The  BRICS  are  major  emerging  
markets  poised  to  lead  the  global  trade  arena  in  the  next  century  and  include  Brazil,  Russia,  
India,  and  China  (Wilson,  Purushothaman).  The  N-­‐11  are  considered  to  be  the  next  in  line  in  
regard  to  economic  growth  and  prowess,  and  includes  Bangladesh,  Egypt,  Indonesia,  Iran,  
Mexico,  Nigeria,  Pakistan,  Philippines,  Turkey,  South  Korea,  and  Vietnam  (Stupnytska,  Wilson).  
Both  the  BRICs  and  N-­‐11  are  considered  to  hold  the  highest  investment  risk  and  greatest  
opportunity  for  return.    
 
Goldman  Sachs  reports  that  growth  over  the  next  decade,  from  2010-­‐2020,  looks  promising  
throughout  the  BRIC  and  N-­‐11  countries,  with  major  population  cohorts  transitioning  from  
poverty  into  the  middle  class,  as  illustrated  in  the  graph  below.  Analysts  forecast  the  BRICs  will  
contribute  twice  as  much  to  global  growth  than  the  G3  and  double  in  total  GDP  over  the  next  
decade  (Kelston,  Wilson,  Ahmed).    
 

      27  
    
  Source:  Kelston,  Wilson,  Ahmed  
 
Increases  in  growth  throughout  emerging  markets  will  raise  the  demand  for  special  metals  and  
other  related  commodities,  and  result  in  an  increased  need  for  capital  to  fund  the  growth.  
Emerging  markets  will  struggle  through  growing  pains  as  most  lack  the  proper  regulation  and  
infrastructure  to  support  the  current  population,  let  alone  the  forecasted  size.  India  is  already  
facing  severe  infrastructure  concerns  as  recent  power  grid  failures  have  left  over  half  a  million  
people  in  the  dark.  Events  such  as  this  will  likely  become  a  somewhat  regular  occurrence  for  
transitioning  economies,  posing  a  higher  risk  to  financiers  that  hold  emerging  market  streams  
in  their  portfolio.    
 
Opportunities  for  higher  returns  by  investing  in  emerging  markets  come  at  an  increased  cost,  
the  risk  associated  with  financing  and  operating  a  mine  in  an  unstable  and  rapidly  evolving  
environment.  Emerging  markets  often  lack  the  proper  government  structure  to  effectively  
manage  industries,  leaving  many  firms  and  investors  exposed  to  corruption  through  biased  
resource  subsidies  and  taxes,  export  restrictions,  and  regulatory  policies.    
 
A  recent  example  of  such  behavior  is  seen  through  E.U.,  U.S.,  and  Japan  disputes  against  China’s  
rare  earth  export  restrictions  with  the  World  Trading  Organization.  European  Union  Trade  
Commissioner  Karel  DeGucht  said  in  a  statement,  “China’s  restrictions  on  rare  earths  and  other  
products  are  violating  its  WTO  commitments  and  continue  to  significantly  distort  global  
markets  to  the  disadvantage  of  our  companies”  (Moffett).  Policies  implemented  to  promote  the  
biased  treatment  of  private  firms  will  continue  to  challenge  royalty  stream  investors  as  
political  leaders  naturally  compete  to  attract  foreign  direct  investment.    
 
Cases  such  as  this  are  not  limited  to  emerging  markets  but  are  predominantly  caused  by  
growing  countries  attempting  to  balance  sustainable  economic  and  environmental  policies.  
Royalty  streaming  firms  and  investors  must  remain  vigilantly  aware  of  current  affairs  in  the  
portfolio  of  countries  they  hold  streams  to  mitigate  potential  losses.    
 
TAX  ENVIRONMENT:  
 
The  global  tax  environment  rapidly  evolves  with  economic  and  political  fluctuations,  raising  a  
needed  concern  to  royalty  financiers  who  hold  streams  in  politically  unstable  nations.  It  is  
critically  important  for  governments  who  aim  to  promote  consistent  economic  expansion  to  

      28  
 apply  a  balanced  taxation  scheme  to  attract  foreign  direct  investment.  Although,  as  the  global  
economy  struggles  to  recover,  fiscally  weak  governments  will  likely  increase  taxes  derived  
from  mining  and  related  activities  in  attempt  to  extract  a  greater  value  from  the  industry.  
Increased  taxes  will  slow  royalty-­‐streaming  growth  in  the  short  term,  but  these  costs  should  be  
outweighed  by  similar  demand  increases  in  consumption  related  to  these  resources.    
 
It  is  also  expected  that  governments  will  expand  regulatory  oversight  of  resource  mining  and  
related  industry  firms.  As  a  means  to  promote  unbiased  policies,  regulatory  oversight  should  
lead  to  higher  government  revenues  generated  from  industry  activity  as  more  firms  are  forced  
to  comply.  An  example  of  heightened  oversight  is  the  U.S.  Securities  and  Exchange  Commission  
recent  increase  in  disclosure  requirements  for  extractive  companies  (energy,  mining)  listed  on  
American  stock  exchanges.  Firms  now  have  to  report  payments  of  taxes,  royalties,  and  fees  to  
any  country  they  operate  within  (Burgi,  Wilson,  Carlson).  Increases  in  industry  oversight  and  
reporting  standards  will  make  tax  evasion  and  other  questionable  activity  harder  to  achieve  
for  companies  listed,  or  who  aspire  to  by,  on  U.S.  exchanges.    
 
Some  mining  and  royalty  financing  companies  have  strategically  incorporated  in  more  tax-­‐
appealing  countries.  By  incorporating  in  these  nations,  they  are  temporarily  able  to  side  step  
increased  costs  associated  with  taxes  that  otherwise  would  be  applicable.  Sandstorm,  a  major  
royalty-­‐streaming  firm  based  out  of  Vancouver,  BC,  is  incorporated  in  Barbados,  leading  to  
minimal  income  taxes  and  higher  revenues  generated.  This  poses  a  risk  to  future  operations  of  
the  firm  if  government  officials  in  operating  regions  of  the  firm  seek  recovery  of  unpaid  taxes.  
 
Major  developed  mining  economies,  including  the  United  States,  Canada,  and  Australia,  are  
likely  to  converge  tax  regulation  and  oversight  to  enact  unbiased  and  uniform  policies.  The  
current  environment  allows  for  a  wide  variety  of  standards,  differing  amongst  levels  of  
government  (regional,  national),  which  political  leaders  hope  to  change  through  policies  that  
promote  increased  accountability  and  transparency.  In  this  process,  governments  will  likely  
move  to  profit  or  income  based  royalty  taxes  because  they  can  extract  higher  revenues  and  
more  accurately  track  underlying  market  conditions.    
 

      29  
 6. Conclusion  
 
Royalty  streaming  agreements  are  shaping  the  future  of  the  mining  industry  by  increasing  the  
number  of  available  capital  sources,  promoting  further  exploration  and  production.  Relative  to  
traditional  financing  vehicles,  the  attractive  nature  of  streaming  agreements  creates  a  unique  
opportunity  that  meets  the  needs  of  both  investors  and  mine  operators.  By  leveraging  proven  
reserves  to  fund  production  or  expansion,  both  parties  are  able  to  achieve  higher  returns  and  
promote  continued  growth.    
 
From  the  perspective  of  an  investor  in  royalty  streaming  firms,  the  volatile  nature  of  
commodities  and  the  increased  risk  associated  with  the  mining  industry  need  be  weighed  
accordingly.  Investor’s  should  consider  individual  streams  similarly  to  bonds,  or  firm  
portfolios  as  tranches  of  collateralized  debt  obligations,  to  rate  industry  prospects  when  
analyzing  investment  opportunities.    
 
The  royalty  stream  financing  space  has  quickly  evolved  into  an  influential  source  of  funding  for  
the  mining  industry,  naturally  raising  the  competition  amongst  firms  to  provide  the  most  
efficient  terms.  As  traditional  routes  of  sourcing  capital  flounder  in  economic  uncertainty,  and  
volatile  stock  markets  threaten  equity  dilution,  it  is  expected  that  more  junior  and  mid-­‐tier  
exploration  and  production  companies  will  turn  to  royalty  streaming  to  finance  growth.    
 

      30  
Appendix  
 
Secondary  Firms  
 
Golden  Predator  Corp  (GPD):  
 
Golden  Predator  is  a  leading  gold  explorer  and  producer  in  Alaska's  Yukon  region,  holding  over  
one  million  acres  of  underexplored  land.  Major  exploration  properties  include  Brewery  Creek  
(resource  phase);  and  Clear  Creek,  Grew  Creek,  Gold  Dome,  and  Cache  Creek  (discovery  
phase).  
 
Golden  Predator's  royalty  portfolio  currently  holds  8  streams,  under  the  name  "Gold  Standard  
Royalty  Corp",  and  is  focused  throughout  multiple  regions  of  Nevada  (Carlin  Trend,  Battle  Mt  
Eureka  Trend,  Walker  Lane  Lineament),  in  addition  to  one  interest  in  Wyoming.  Management  
expects  annual  pre-­‐production  revenue  of  $1.2  million  from  these  streams  for  2012.  Key  
management  includes  William  Sheriff,  CEO,  who  founded  Golden  Predator  and  Energy  Metals  
Corp.,  and  Michael  Maslowski,  COO.  The  firm  is  based  in  Vancouver,  BC.    
 
www.goldenpredator.com  
 
Virginia  Mines  Inc.  (VGQ):  
 
Virginia  Mines  is  primarily  a  mining  exploration  outfit  focused  on  the  James-­‐Bay  region  of  
Northern  Quebec.  This  remote  region  is  one  of  the  most  promising  locations  in  North  America  
for  mining  prospects.  One  of  the  more  notable  discoveries  of  the  firm  is  the  Eleonore  deposit,  
which  was  acquired  by  GoldCorp  in  2006  and  pays  a  monthly  royalty  of  $100,000  USD.  The  
company’s  explorations  are  significantly  funded  through  royalty  streams,  currently  holding  
eleven  gold  properties,  eight  basic  metal  properties,  and  eleven  royalty  streams.  Key  
management  includes  Andre  Guamond,  President,  CEO,  Director,  and  Paul  Archer,  VP  of  
Exploration  and  Acquisitions.  
   
www.minesvirginia.com  
 
MFC  Industrial  Ltd.  (MIL):  
 
MFC  Industrial,  formerly  Terra  Nova  Royalty  Corp,  is  a  global  supply  chain  management  
company  focused  on  commodity  and  resource  financing  (trading  &  royalty  streams),  merchant  
banking,  and  other  corporate  investments  in  medical  supplies  and  service  businesses.  The  
company  actively  trades  commodities  in  metals/minerals,  chemicals/plastics,  and  wood  
products  that  are  globally  sourced  and  sold.    
 
Mine  royalty  streams  are  an  extremely  profitable,  yet  minimal,  segment  of  MFC  international  
operations.  The  proprietary  trading  division,  obtained  through  the  Mass  Financial  acquisition,  
threatens  large  fluctuations  in  cash  flow  from  year  to  year.  Current  management  exhibits  
interest  in  acquiring  additional  royalty  streams,  potentially  increasing  the  firm’s  influence  in  
the  resource  financing  space.  MFC  Industrial  is  led  by  Michael  Smith,  CEO,  and  has  operations  
in  Austria,  Hong  Kong,  Canada,  China  and  India.      
 

      31  
 www.mfcindustrial.com  
 
Royalco  Resources  Limited  (RCO):  
 
RoyalCo  Resources  Limited  is  an  Australian  based  royalty  company  that  holds  10  producing  
streams  in  the  Australia-­‐Asia  region  and  a  database  of  exploration  interest  throughout  the  
Philippines  and  Eastern  Africa.  The  firm  holds  royalty  interests  in  gold,  zinc,  lead,  silver,  nickel,  
cobalt,  and  copper  commodities.  RoyalCo  is  based  out  of  Melbourne,  Australia  and  managed  by  
Peter  Topham,  Executive  Chairman.    
 
www.royalco.com.au  
 
Premiere  Gold  Mines  Ltd.  (PG):  
 
Premiere  Gold  Mines  Ltd.  is  primarily  a  gold  focused  exploration  and  mining  company  with  a  
growing  portfolio  of  royalty  streams.  The  company’s  royalty  division  was  created  in  2011  and  
operates  under  the  name  Premiere  Gold  Royalties.  Current  portfolio  of  royalties  includes  
claims  in  part  of  Newmont’s  Emigrant  Springs  Deposit,  Buffelfontein  Mine  (South  Africa),  
Thunder  Creek  Deposit,  and  Yamana’s  Gualcamayo.  The  firm’s  most  recent  acquisition  is  a  
major  royalty  (1%  NSR)  on  Yamana’s  Gualcamayo  Gold  Mine  for  $17.75  million,  previously  
held  by  Golden  Arrow  Resources.    
 
A  recent  merger  between  Premier  Gold  Royalties  and  Bridgeport  Ventures  will  increase  the  
overall  company’s  royalty  focus  and  influence  in  the  streaming  space.  The  firm  is  based  in  
Ontario,  Canada,  and  key  management  includes  Ebe  Scherkus,  Chairman  &  Director,  Ewan  
Downie,  CEO,  President,  &  Director,  and  John  Seaman,  Director.    
 
www.premiergoldmines.com  
 
 
Consulting  Firms  
 
Behre  Dolbear:  
   
Behre  Dolbear  Group  Inc.  is  one  of  the  oldest  mining  industry  advisors  that  consult  on  
technical,  operational,  and  financial  issues.  Specialties  include  advising  on  base  and  precious  
metals,  coal,  industrial  minerals,  diamonds  and  gemstones,  ferrous  metals,  and  construction  
materials.    
 
The  current  President  and  CEO,  Karr  McCurdy,  has  refocused  the  firm’s  strategy  on  
international  growth  by  expanding  Behre's  service  products  and  end  markets.  Prior  resource  
industry  experience  includes  senior  management  positions  at  Standard  Chartered  Bank,  
Citigroup,  Mellon  Bank,  and  Wells  Fargo.  McCurdy  has  personally  completed  over  200  advising  
and  financing  transactions,  valued  at  over  $100  billion.    
 
www.dolbear.com  
 

      32  
 Key  Capital  Corp.  (KCPC.PK):  
 
Key  Capital  Corporation  has  recently  refocused  its  corporate  strategy  on  positioning  itself  as  a  
leading  "niche"  financier  to  junior  mining  operations  through  resource  streaming  agreements.  
The  company  seeks  royalties  in  gold,  silver,  base  metals  and  energy  production.  Key  
management  feels  that  there  is  a  significant  void  in  the  resource  streaming  industry  in  regard  
to  financing  smaller  mining  operations.  The  firm  is  led  by  Chris  Nichols,  President  and  CEO,  
and  is  based  in  Tempe,  AZ.    
 
www.keycapitalgroup.com  
 
Surge  Capital  Corp:  
 
Surge  Capital  Corporation  specializes  in  consulting  services,  international  road  shows,  and  
financing  tools  (equity,  debt,  and  volumetric  production  payment).  The  company  is  based  out  
of  Vancouver,  BC  and  led  by  Jay  Friesen,  President,  and  Nathan  Friesen,  Vice  President.    
 
www.surgecapital.ca  
 
PearTree  Financial  Services:  
 
PearTree  Financial  Services  operates  with  a  unique  strategy  by  facilitating  the  transfer  of  mine  
royalties  or  Resource  Company  shares  to  a  charity  of  the  donor’s  choice,  structured  in  a  
fashion  to  minimize  tax  costs  associated  with  donations.  The  firm  started  in  2006  and  
management  states  that  they  have  arranged  over  $250  million  in  donations  since,  resulting  in  
about  $40  million  in  taxes  being  saved  and  generating  revenue  by  charging  a  13%  fee  on  
transactions  (PearTree).  PearTree  is  based  in  Toronto,  Ontario  and  is  led  by  Renee  Bleemen,  
Chair,  Ron  Bernbuam,  Co-­‐founder,  and  Brian  Wadsworth,  Co-­‐founder.    
 
www.peartreefinserv.com  

      33  
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      35  
  
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      36  
  
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